March 16, 2020 / 5:20 PM / 2 months ago

UPDATE 2-Chile's central bank slashes interest rate to 1%, FinMin warns of 'powerful, transitory' coronavirus impact

(Adds comments from finance minister)

SANTIAGO, March 16 (Reuters) - Chile´s central bank said on Monday it would cut its interest rate to 1% from 1.75% in an extraordinary measure motivated by the global coronavirus outbreak as its finance minister warned the impact on the Latin nation would be “powerful but transitory.”

In a statement, the bank said the unanimous decision was taken amid a “rapid and significant deterioration” of the Chilean economy because of coronavirus and the associated global financial turbulence.

Finance Minister Ignacio Briones told reporters on Monday it was likely that 2020 growth - previously projected by the government at between 1% and 1.5% - would take a “downwards turn,” without offering further details.

“We have to be frank and realistic - this will hit us hard,” he said.

Chile, the world’s top copper producer, has already seen a drop in demand for the red metal from China, where the virus originated. Copper prices slid on Monday to the lowest since November 2016 on worries that lockdowns in Europe and the United States to tackle the coronavirus would further erode demand.

Briones said that at present, there was “nothing to suggest” that supply would be affected.

Chile’s interest rate was last at 1% almost 10 years ago, in June 2010.

The central bank held the rate steady for several months as widespread protests over social inequality that began in October caused billions in losses to business. Last month, inflation reached with a whisker of its 4% target limit as the peso has weakened.

On Thursday, with the peso hitting a fresh historic low over coronavirus concerns and the country’s main stock index falling to a four-year low, the bank said it would expand an intervention program aimed at ensuring liquidity and stabilizing the peso.

The Monday rate cut came alongside other measures including a bond sale and loan flexibility plans. (Reporting by Fabian Cambero and Aislinn Laing Editing by Nick Zieminski and Steve Orlofsky)

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